Transitional arrangements for input tax credit [ Section 140 ] - GST Ready Reckoner - GST

Transitional arrangements for input tax credit Amount of CENVAT Credit carried forward in a return to be allowed as ITC [ section 140(1) ] A registered Person other than a person opting to pay tax under section 10, shall be entitled to take, in his Electronic Credit Ledger, the amount of CENVAT credit of eligible duties carried forward in the return relating to the period ending with the day immediately preceding the appointed day , furnished by him under the existing law within 90 day from the appointment day Provided No Credit in the following Circumstances Where the credit not admissible as ITC under the act Where not furnished the return for period of 6 months under the existing law immediately proceeding the appointed day Where said credit relates to goods manufactured and cleared under exemption notifications Eligibility of credit and restriction Every registered person entitled to take credit of input tax shall be submit an application electronically in FORM GST TRAN-1. Application shall be submitted Within 90 days of the appointment day. the commissioner may, on the recommendations of the GST Council, extend the period by a further period not exceeding 90 days. Unavailed CENVAT Credit on Capital goods , to be allowed in certain situations [ Section 140(2) ] A registered Person other than a person opting to pay tax under section 10, shall be entitied to take, in his Electronic Credit Ledger , credit of the unavailed CENVAT credit in respect of capital goods, not carried forward in a return, furnished under the existing law by him, for the period ending with the day immediately preceding the appointed day within such time and in such manner as may be prescribed Explanation Unavailed Cenvat Credit on capital goods = Amount of cenvat credit eligible on capital goods Minus Cenvat credit already availed Eligibility of credit and restriction Every registered person entitled to take credit of input tax shall be submit an application electronically in FORM GST TRAN-1. Application shall be submitted Within 90 days of the appointment day. the commissioner may, on the recommendations of the GST Council, extend the period by a further period not exceeding 90 days. The application shall also specify separately the following particulars in respect of every item of capital goods as on the appointed day (i) the amount of tax or duty availed or utilized by way of input tax credit under each of the existing laws till the appointed day; and (ii) the amount of tax or duty yet to be availed or utilized by way of input tax credit under each of the existing laws till the appointed day; Credit of eligible duties and taxes in respect of Inputs held in a stock to be allowed (semi-finished Goods) [ section 140(3) ] A Registered person other than stock for who was not liable to be registered under the existing law, or who was engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of notification No. 26/2012-Service Tax, dated the 20th June, 2012, or a first stage dealer or a second stage dealer or a registered importer, or a depot of a manufacturer shall be entitled to take, in his electronic credit ledger , credit of eligible duties in respect of inputs contained in semi-finished or finished goods held in stock on the appointed day within such time and in such manner as may be prescribed subject to the following conditions, namely: (i) such inputs or goods are used or intended to be used for making taxable supplies under this Act; (ii) the said registered person is eligible for input tax credit on such inputs under this Act; (iii) the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs; (iv) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and (v) the supplier of services is not eligible for any abatement under this Act: Provided where a registered person, other than a manufacturer or a supplier of services, is not in possession of an invoice or other documents then, he shall, pass on the benefit of such credit by way of reduced prices to the recipient, and he shall be allowed to take credit at such rate and in such manner as may be prescribed Eligibility of credit in case a person is engaged in manufacture of taxable as well as exempted goods [ Section 140(4) ] A Registered Person engaged in the manufacture of taxable as well as exempted goods under the Central Excise Act, 1944 or provision of taxable as well as exempted services under Chapter V of the Finance Act, 1994, Such exempted goods or exempted services are liable to tax under this Act. He held the duty paid stock in hand on the appointment day on which he has not claimed Cenvet credit. he also has carried forward tax credit in the last return preceding the appointment day. Unclaimed credit pertains to eligible duties in respect of input held in stock and inputs contained in semi -finished goods or finished goods held in stock on the appointment day. Eligibility of credit and restriction It shall be entitled to take, in his electronic credit ledger,- the amount of CENVAT credit carried forward in a return furnished under the existing law by him in accordance with the provisions of section 140(1); and the amount of CENVAT credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day, relating to such exempted goods or services, in accordance with the provisions of section 140(3). Amount of credit shall be calculated in such manner as may be prescribed. Unclaimed duties shall be claimed as CGST in his electronic credit ledger. Credit of eligible duties or tax in respect of input or input services received after appointment day [ section 140(5) ] A registered person shall be entitled to take,credit of eligible duties and taxes in respect of inputs or input services received on or after the appointed day but the duty or tax in respect of which has been paid by the supplier under the existing law, Eligibility of credit and restriction such person shall be to entiled to take credit, subject to the condition that The invoice or any other duty or tax paying document of the same was recorded in the books of account of such person within a period of thirty days from the appointed day: The period of thirty days may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding thirty days: The registered person shall furnish a statement, in such manner as may be prescribed, in respect of credit that has been taken under this sub-section. ITC on closing stock where taxes are paid on fixed rate or fixed amount [ Section 140(6) ] A registered Person paying tax at fix rate or paying a fix amount shall be entitied to take in Electronic Credit Ledger, Eligible credits on inputs, inputs in semi-finished and in finished goods held in stock on the appointed day. Eligibility of credit and restriction Such stock to be used or intended to be used for making taxable supplies Such person eligible to take ITC on inputs under this act Such said person must be in possession of invoice prescribed documents evidencing payment of duty under existing law in respect of inputs; and He is not paying tax under Section 10 i.e. Composition Levy Such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day. Distribution of Credit under this Act by Input Service Distributor [ section 140(7) ] Input Service Distributor shall be eligible for distribution of credit under this Act within such time manner as may be prescribed for any service prior to the appointed day even if invoice is received on or after appointed day [ whether the invoices relating to such services are received prior to, on or after, the appointed day. w.e.f. 01.07.2017, Substituted vide Finance (No. 2) Act, 2024 (shall come into force w.e.f. 01.11.2024 vide N.No. 17/2024 dated 27.09.2024) ] Carry forward of credit where person has centralised registration under existing law [ section 140(8) ] Where a registered person having centralised registration under the existing law has obtained a registration under this Act, such person shall be allowed to take, in his electronic credit ledger, credit of the amount of CENVAT credit carried forward in a return, furnished under the existing law by him, in respect of the period ending with the day immediately preceding the appointed day. Eligibility of credit and restriction if the registered person furnishes his return for the period ending with the day immediately preceding the appointed day within three months of the appointed day, such credit shall be allowed subject to the condition that the said return is either an original return or a revised return where the credit has been reduced from that claimed earlier : the registered person shall not be allowed to take credit unless the said amount is admissible as input tax credit under this Act: such credit may be transferred to any of the registered persons having the same Permanent Account Number for which the centralised registration was obtained under the existing law. ITC Reversal Reclaim [ section 140(9) ] If CENVAT credit availed for input services provided under the existing law has been reversed due to non payment of consideration within 3 months Such credit can be reclaimed if he has made the payment within 3 months from the appointed day. Declaration Of ITC availed To be made Note : Rule 117 Provides for declaration of credit of input tax so availed must be within 90 days in FORM GST TRAN-1 to be made Electronically Provided that the Commissioner may, on the recommendations of the Council, extend the period of ninety days by a further period not exceeding ninety day. As per section 140(10) The amount of credit under sub-sections (3), (4) and (6) shall be calculated in such manner as may be prescribed, Explanation 1 . For the purposes of sections 140(1), (3), (4)] and (6), the expression eligible duties means the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act the additional duty leviable under section 3(1) or (5) of the Customs Tariff Act, 1975; the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985; the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985; and the National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001, in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day. the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957. Explanation 2 For the purposes of sections 140(1) and (5), the expression eligible duties and taxes means- the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act the additional duty leviable under section 3(1) or (5) of the Customs Tariff Act, 1975; the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985; the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985; and the National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001, in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day. the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957. Explanation 3 For removal of doubts, it is hereby clarified that the expression eligible duties and taxes excludes any cess which has not been specified in Explanation 1 or Explanation 2 and any cess which is collected as additional duty of customs under section 3(1) of the Customs Tariff Act, 1975. Carry forward or availing wrong Cenvat Credit - Recovery [ Circular No. 33/07/2018-GST Dated 23rd Feb., 2018 ] Non-utilization of Disputed Credit carried forward Where in relation to a certain CENVAT credit pertaining to which a show cause notice was issued under rule 14 of the CENVAT Credit Rules, 2004, which has been adjudicated and where in the last adjudication order or the last order-in-appeal, as it existed on 1st July, 2017, it was held that such CENVAT credit is not admissible, then such CENVAT credit (herein and after referred to as disputed credit ), credited to the electronic credit ledger in terms of sub-section (1), (2), (3), (4), (5) (6) or (8) of section 140 of the Act , shall not be utilized by a registered taxable person to discharge his tax liability under this Act or under the IGST Act, 2017, till the order-in-original or the last order-in-appeal, as the case may be, holding that disputed credit as inadmissible is in existence. During the period, when the last order-in-original or the last order-in-appeal, as the case may be, holding that disputed credit as inadmissible is in operation, if the said disputed credit is utilised, it shall be recovered from the tax payer, with interest and penalty as per the provisions of the Act. Non-transition of Blocked Credit In terms of section 140(1)(i) of the CGST Act, a registered person shall not take in his electronic credit ledger, amount of CENVAT credit as is carried forward in the return relating to the period ending with the day immediately preceding the appointed day which is not eligible under the Act in terms of section 17(5) , such as, telecommunication towers and pipelines laid outside the factory premises. If the said blocked credit is carried forward and credited to the electronic credit ledger in contravention of section 140 of the Act , it shall not be utilized by a registered taxable person to discharge his tax liability under this Act and shall be recovered from the tax payer with interest and penalty as per the provisions of the Act. If Non-utilization of Disputed Credit carried forward or Non-transition of Blocked Credit terms of afore-stated is higher than ₹ 10 lakhs, In all cases where the disputed credit as defined in Non-utilization of Disputed Credit carried forward or Non-transition of Blocked Credit terms of afore-stated is higher than ₹ 10 lakhs , the taxpayers shall submit an undertaking to the jurisdictional officer of the Central Government that such credit shall not be utilized or has not been availed as transitional credit, as the case may be. In other cases of transitional credit of an amount lesser than ₹ 10 lakhs , the directions as above shall apply but the need to submit the undertaking shall not apply. Clarification regarding procedure for recovery of arrears under the existing law and reversal of inadmissible input tax credit [ Circular No. 42/16/2018-GST Dated 13th April, 2018 ] 3. Legal provisions relating to the recovery of arrears of central excise duty and service tax and CENVAT credit thereof arising out of proceedings under the existing law ( Central Excise Act, 1944 and Chapter V of the Finance Act, 1994 ) i) Recovery of arrears of wrongly availed CENVAT Credit: In case where any proceeding of appeal, review or reference relating to a claim for CENVAT credit had been initiated, whether before, on or after the appointed day, under the existing law, any amount of such credit becomes recoverable, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under the CGST Act [ Section 142(6)(b) of the CGST Act refers]. ii) Recovery of CENVAT Credit carried forward wrongly: CENVAT credit of central excise duty/service tax availed under the existing law may be carried forward in terms of transitional provisions as per section 140 of the CGST Act subject to the conditions prescribed therein. Any credit which is not admissible in terms of section 140 of the CGST Act shall not be allowed to be transitioned or carried forward and the same shall be recovered as an arrear of tax under section 79 of the CGST Act. iii) Recovery of arrears of central excise duty and service tax: Where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the existing law, any amount of tax, interest, fine or penalty becomes recoverable, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under the CGST Act [ Section 142(8)(a) of the CGST Act refers]. If due to any proceedings of appeal, review or reference relating to output duty or tax liability initiated, whether before, on or after the appointed day, under the existing law, any amount of output duty or tax becomes recoverable, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under the CGST Act [ Section 142(7)(a) of the CGST Act refers]. iv) Recovery of arrears due to revision of return under the existing law: Where any return, furnished under the existing law, is revised after the appointed day and if, pursuant to such revision, any amount is found to be recoverable or any amount of CENVAT credit is found to be inadmissible, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under the CGST Act [ Section 142(9)(a) of the CGST Act refers]. 4 . In view of the above legal provisions, recovery of central excise duty/ service tax and CENVAT credit thereof arising out of the proceedings under the existing law, unless recovered under the existing law, and that of inadmissible transitional credit, is required to be made as an arrear of tax under the CGST Act . The following procedure is hereby prescribed for the recovery of arrears: 4.1 Recovery of central excise duty, service tax or wrongly availed CENVAT credit thereof under the existing law and inadmissible transitional credit: (a) The CENVAT credit of central excise duty or service tax wrongly carried forward as transitional credit shall be recovered as central tax liability to be paid through the utilization of amounts available in the electronic credit ledger or electronic cash ledger of the registered person, and the same shall be recorded in Part II of the Electronic Liability Register ( FORM GST PMT-01 ). (b) The arrears of central excise duty, service tax or wrongly availed CENVAT credit thereof under the existing law arising out of any of the situations discussed in para 3 above, shall, unless recovered under the existing law, be recovered as central tax liability to be paid through the utilization of amounts available in the electronic credit ledger or electronic cash ledger of the registered person, and the same shall be recorded in Part II of the Electronic Liability Register ( FORM GST PMT-01 ). 4.2 Recovery of interest, penalty and late fee payable: (a) The arrears of interest, penalty and late fee in relation to CENVAT credit wrongly carried forward, arising out of any of the situations discussed in para 3 above, shall be recovered as interest, penalty and late fee of central tax to be paid through the utilization of the amount available in electronic cash ledger of the registered person and the same shall be recorded in Part II of the Electronic Liability Register ( FORM GST PMT-01 ). (b) The arrears of interest, penalty and late fee in relation to arrears of central excise duty, service tax or wrongly availed CENVAT credit thereof under the existing law arising out of any of the situations discussed in para 3 above, shall, unless recovered under the existing law, be recovered as interest, penalty and late fee of central tax to be paid through the utilization of the amount available in the electronic cash ledger of the registered person and the same shall be recorded in Part II of the Electronic Liability Register ( FORM GST PMT-01 ). 4.3 Payment of central excise duty service tax on account of returns filed for the past period: The registered person may file Central Excise / Service Tax return for the period prior to 1st July, 2017 by logging onto www.aces.gov.in and make payment relating to the same through EASIEST portal (cbec-easiest.gov.in), as per the practice prevalent for the period prior to the introduction of GST. However, with effect from 1st of April, 2018, the return filing shall continue on www.aces.gov.in but the payment shall be made through the ICEGATE portal. As the registered person shall be automatically taken to the payment portal on filing of the return, the user interface remains the same for him. 4.4 Recovery of arrears from assessees under the existing law in cases where such assessees are not registered under the CGST Act, 2017 .